The price of universal broadband

Bringing universal broadband to all Americans is not going to be cheap.

The Federal Communications Commission said Tuesday it could cost more than $350 billion to wire the United States with high-speed Internet access.

The FCC has been given the responsibility of coming up with a national broadband policy to ensure every American has access to broadband. And on Tuesday a task force at the FCC led by Blair Levin, former chief of staff to onetime FCC Chairman Reed Hundt, issued its initial report on forming this plan. The final report is due to Congress in February.

The FCC task force has been hosting workshops and hearings. And it will continue to do so over the next few months. But what it has concluded at this early stage is that bringing true broadband to all Americans is going to cost a lot.

While it would only take about $20 billion to blanket the country with broadband service with speeds between 768Kbps to 3Mbps service, the FCC has questioned whether those speeds will be enough. Instead, it is recommending more aggressive network build-outs that would increase the speed of these networks to about 100Mbps or faster. This will likely push the price tag of the entire network expansion to more than $350 billion. And if all consumers are given a choice of broadband provider, these cost estimates would be even higher.

There are a lot of factors that make building universal broadband expensive. It's much more expensive to build infrastructure in rural areas. Not only are capital expenditures more expensive in rural areas, but the operating expenses are higher, driven by transport and transit. Universal Service Fund recipients have made progress bringing broadband to rural America, but the fund faces systemic and structural problems.

So who is going to pay for this expensive infrastructure? The government will pay for some of it. Congress has already allocated $7 billion as part of the economic stimulus package. And more tax payer money is likely to be used in the future. Exactly, how much is uncertain.

But the bulk of the money used to build these networks will likely come from private industry, Levin said at the meeting held Tuesday in Washington, The Wall Street Journal reported (subscription required).

"Most of that ecosystem is funded by the private sector," Levin said. "We expect that to continue. Where can the government play a role in ensuring and improving the role of that ecosystem?"

The FCC believes these faster networks are necessary because broadband users are expected to use more bandwidth-intensive applications in the future than they use today. For example, the average consumer today uses the Internet for Web browsing, e-mail and instant messaging, and entertainment, but in the future uses will include streaming video, video teleconferencing, and electronic medical monitoring. These services and applications will require significantly more bandwidth.

If the FCC establishes regulation and policy to encourage these faster speed connections, the agency will have to figure out how to measure the quality of these connections. Today no such quality assurance is in place. And the FCC said in its report that actual broadband speeds lag advertised speeds by at least 50 percent, which means people are often paying for speeds that they do not get.

Another issue that must be dealt with is how the FCC will encourage more competition to give consumers choice, especially when it comes to these higher-speed services. At least half of Americans today only have access to one provider that can offer Internet speeds for video streaming and two-way video conferencing.

While wired broadband is critical, the FCC also noted in its report that wireless broadband access is also becoming increasingly important. By 2011, smartphones, which are more like mini-computers than phones, will overtake sales of traditional cell phones. Smartphone users generally use a lot more wireless data services, which means that carriers will have to keep beefing up their networks to provide more capacity.

While some of the biggest carriers, such as Verizon Wireless and Sprint Nextel are already building the next generation of wireless networks, which increase speeds and network capacity, the FCC noted that there is still a need to make more wireless spectrum available.

The CTIA, the trade association for the wireless industry, sent a letter to the FCC this week saying the government needs to identify more airwaves that can be used for commercial use.